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The effect of differentiated margin on futures market investors' behavior and structure: An experimental research

Jin‐hui Luo (School of Management, Xi'an Jiaotong University, Xi'an, People's Republic of China and School of Business, University of Alberta, Edmonton, Canada)
Di‐fang Wan (School of Management, Xi'an Jiaotong University, Xi'an, People's Republic of China)
Yang Yang (School of Management, Xi'an Jiaotong University, Xi'an, People's Republic of China)
Guang Yang (School of Management, Xi'an Jiaotong University, Xi'an, People's Republic of China)

China Finance Review International

ISSN: 2044-1398

Article publication date: 28 January 2011

757

Abstract

Purpose

The purpose of this paper is to empirically analyze the role of differentiated margin system in leading investors' investing behavior and then optimize investor structure in futures markets.

Design/methodology/approach

Using economic experimental research method, this paper designs and conducts a futures market experiment according to experimental research's basic norms, thus acquiring needed and credible empirical data.

Findings

By analyzing the experimental data, it is found that compared with situations in futures markets that implement uniform margin system, investors' (especially speculators') futures open position and the ratio of their open position and futures turnover are both significantly higher, in futures markets that implement differentiated margin system. On the other hand, differentiated margin system has no effects on hedgers' futures turnover, but significantly reduces speculators' futures turnover.

Research limitations/implications

The findings suggest that compared with uniform margin system, differentiated margin system is beneficial to effectively restrict both speculators' and hedgers' speculating behavior and lead hedgers' market participation.

Practical implications

In order to resolve the problem of unreasonable investor structure in China's futures market, i.e. lack of hedgers and over‐speculating, China's futures market's regulators should reform the margin system and adopt differentiated margin system to lead investors' rational behavior and optimize investor structure.

Originality/value

This paper empirically analyzes and verifies, for the first time, the roles of differentiated margin system in affecting investors' investing behavior. The futures market experiment designed and used in this study is a pioneering and exploratory experiment.

Keywords

Citation

Luo, J., Wan, D., Yang, Y. and Yang, G. (2011), "The effect of differentiated margin on futures market investors' behavior and structure: An experimental research", China Finance Review International, Vol. 1 No. 2, pp. 133-151. https://doi.org/10.1108/20441391111100723

Publisher

:

Emerald Group Publishing Limited

Copyright © 2011, Emerald Group Publishing Limited

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